Court Gets in Line with Majority of Jurisdictions on Faulty Products Coverage

by Pillsbury Winthrop Shaw Pittman LLP
Contact

A recent decision from an appellate court in Pennsylvania is good news for policyholders who manufacture products, as yet another jurisdiction joins the majority view that product manufacturers may be covered for damage that can be linked to their products under commercial general liability (CGL) policies.

Background

In Indalex Inc. v. National Union Fire Insurance Co.1, several lawsuits were filed against Indalex, alleging that windows and doors it supplied to a residential construction project were defectively designed or manufactured, resulting in water leakage that caused physical damage to the underlying plaintiffs’ residences, as well as personal injuries in some instances. Many contractors also impleaded Indalex into lawsuits brought by homeowners directly against them. The primary insurer, One Beacon, defended and indemnified Indalex in these lawsuits. But when its policy limits were exhausted, National Union, the umbrella insurer, refused to defend and indemnify Indalex. Relying upon Kvaerner2 and its progeny, it claimed that faulty workmanship and product defects do not qualify as an “occurrence” under the National Union policy.

Indalex brought a coverage action against National Union. The trial court agreed with National Union’s position, and granted its motion for summary judgment. On appeal, the court’s focus was whether Indalex’s workmanship could constitute an “occurrence.”

The National Union policy defined “occurrence” as “an accident, including continuous or repeated exposure to conditions, which results in Bodily Injury or Property Damage neither expected nor intended from the standpoint of the Insured.”

Superior Court’s Decision

Pennsylvania courts have previously confused the “occurrence” issue, holding that faulty workmanship does not constitute an “occurrence” under a typical CGL policy. These courts have incorrectly reasoned that faulty workmanship to work product itself is a contractual issue between two parties, not contemplated by CGL coverage.3 But in Indalex, the court shifted course from this trend toward the majority view, and noted that the damage was caused by an “off-the-shelf product” (windows and doors) that failed. The court construed the product’s failure as an “active malfunction,” distinguished it from faulty workmanship, and noted that the product caused damage to other property.

As a result, the Indalex court held that National Union was required to defend Indalex with regard to the underlying claims of property damage and personal injury. “Simply stated, because Appellants set forth tort claims based on damages to persons or property, other than the insured’s product, we cannot conclude that the claims are outside the scope of the coverage.”

Outlook

This is an important decision, especially for manufacturers who supply products that are used in construction projects. The critical distinction is that where a faulty product causes harm to other property, a CGL policy may provide coverage, because the damage to the “other property” constitutes an “occurrence.”

Many state supreme courts (for example, Connecticut, North Dakota, and West Virginia) have, in the past year, determined that faulty workmanship can be an occurrence, particularly where it causes unintended and unexpected damage to other property. And, some states have even enacted legislation requiring CGL policies to define occurrence to include property damage or bodily injury resulting from faulty workmanship, or have made it easier for insureds to obtain coverage for damages as a result of work the insureds performed (for example, Arkansas, South Carolina, Colorado and others). New Jersey also recently introduced legislation seeking to require CGL insurers to alter the definition of "occurrence" to include property damage from faulty workmanship.

Although the Indalex decision centered around faulty products, a parallel can be drawn between a faulty product and faulty workmanship, both of which may cause similar unintended damage. At the least, this decision widens coverage for policyholders, and appears to be a step in the right direction toward the majority view nationwide, that CGL policies should cover faulty workmanship that causes damage to other property.

  1. 2013 Pa Super. 311 (December 3, 2013).
  2. Kvaerner Metals Division of Kvaerner U.S., Inc. v. Commercial Union Insurance Co., 908 A.2d 888 (Pa. 2006).
  3. For example, in Millers Capital Insurance Co. v. Gambone Bros. Development Co., Inc., 941 A.2d 706 (Pa. Super. 2007), the court held that homes built with defective stucco exteriors, windows, and other artificial seals causing water damage to the interiors were not covered by the developer’s CGL policy, because the product itself was the home, and that faulty workmanship could not constitute an occurrence.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Pillsbury Winthrop Shaw Pittman LLP | Attorney Advertising

Written by:

Pillsbury Winthrop Shaw Pittman LLP
Contact
more
less

Pillsbury Winthrop Shaw Pittman LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.